In a suit brought by the City of Chicago, a Cook County Circuit Court recently ruled that online travel companies, such as Hotels.com, Orbitz.com and Expedia.com, have been under-collecting Chicago hotel taxes. City of Chicago v. Hotels.Com et al., No. 2005 L 051003 (Cook Cty. Cir. Ct., June 21, 2013). In its decision on a motion for summary judgment, the Court ruled that the online travel companies fit within the definition of a “hotel operator” contained in the Chicago Hotel Accommodations Tax Ordinance. Therefore, the companies were required to collect the 4.5% Chicago Hotel Tax on the full amount they collect from customers for rooms rented on their websites.

Historically, online travel companies have limited the hotel taxes they collect to the price the companies pay hotel owners. The amount they charge customers includes the price the online travel companies pay hotel owners plus a markup. Their position is that the markup is simply a nontaxable service charge. The Cook County decision, however, rejected this position and held that the online travel companies constituted hotel operators whose entire gross sales price charged to their customers is subject to tax.

The decision is at odds with courts in other states, which have addressed the same issue and generally concluded that the online companies are not hotel operators for purposes of locally imposed hotel taxes.